Oecd legal Instruments

V.D.5. 
Aligning key executive and board remuneration with the longer term interests of the 
company and its shareholders. 
It is regarded as good practice for boards to develop and disclose a remuneration policy statement covering 
board members and key executives, as well as to disclose their remuneration levels set pursuant to this 
policy. Such policy statements may specify, especially with respect to executives, the relationship between 
remuneration and performance with ex ante criteria linked to performance, and include measurable 
standards that emphasise the long-term interests of the company and the shareholders over short-term 
considerations. Such measurable standards among others may relate to total shareholder return and 
appropriate sustainability goals and metrics. Policy statements generally tend to set conditions for payments 
to board members for extra-board activities, such as consulting. They also often specify terms to be observed 
by board members and key executives about holding and trading the stock of the company, and the 
procedures to be followed in granting and re-pricing options. In some jurisdictions, policy statements also 
provide guidance on the payments to be made when hiring and/or terminating the contract of an executive. 
The board may also monitor the implementation of the policy statement on remuneration. 
Many jurisdictions recommend or require that remuneration policy and contracts for board members and key 
executives be handled by a special committee of the board comprising either wholly or a majority of 
independent directors and excluding executives that serve on each other’s remuneration committees, which 
could lead to conflicts of interest. The introduction of malus and claw-back provisions is considered good 
practice. They grant the company the right to withhold and recover compensation from executives in cases 
of managerial fraud and other circumstances, for example when the company is required to restate its 
financial statements due to material noncompliance with financial reporting requirements. 
The design of remuneration policies and contracts for board members and key executives is critical to set 
incentives that are aligned with a company’s business strategy, corporate governance framework and risk 
management. These policies, however, may not fulfil their goal if they are frequently adjusted in the absence 
of a significant change in the business strategy or a structural transformation of the context in which the 
company operates. Specifically, the likelihood of a significant economic downturn is a factor that companies 
reasonably should consider when designing their remuneration policies and may not necessarily justify an 
adjustment of these policies.